UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q



[X]      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended October 1, 2006

OR

[ ]      Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____ to ____

Commission File Number 1-5109

Todd Shipyards Corporation

(Exact name of registrant as specified in its charter)



|Delaware                                                       | 91-1506719                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number)
|                                                               |                                        
|1801-16th Avenue SW                                            |                                        
|Seattle, WA                                                    | 98134                                  
|(Address of principal executive offices)                       | (Zip Code)                             

Registrant's telephone number, including area code:

(206) 623-1635

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 	[X] Yes  [ ] No



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

LARGE ACCELERATED FILER [ ] ACCELERATED FILER [X] NON-ACCELERATED FILER [ ]



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes  [X] No



There were 5,638,676 shares of the corporation's $.01 par value common stock outstanding at November 9, 2006.



"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Statements contained in this Report which are not historical facts or information are "forward-looking statements."  Words such as "believe," "expect," "intend," "will," "should," and other expressions that indicate future events and trends identify such forward-looking statements.  These forward-looking statements involve risks and uncertainties which could cause the outcome to be materially different than stated.  Such risks and uncertainties include both general economic risks and uncertainties and matters discussed in the Company's annual report on Form 10-K which relate directly to the Company's operations and properties.  The Company cautions that any forward-looking statement reflects only the belief of the Company or its management at the time the statement was made.  Although the Company believes such forward-looking statements are based upon reasonable assumptions, such assumptions may ultimately prove to be inaccurate or incomplete.  The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement was made.



PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGSPeriods Ended October 1, 2006 and October 2, 2005
(In thousands of dollars, except per share data)



The accompanying notes are an integral part of these statements.





TODD SHIPYARDS CORPORATION
CONSOLIDATED BALANCE SHEETSOctober 1, 2006 and April 2, 2006(In thousands of dollars except share data)



The accompanying notes are an integral part of these statements.



TODD SHIPYARDS CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSPeriods Ended October 1, 2006 and October 2, 2005
(in thousands of dollars)





The accompanying notes are an integral part of these statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Todd Shipyards Corporation (the "Company") filed its Consolidated Financial Statements for the fiscal year ended April 2, 2006 with the Securities and Exchange Commission on Form 10-K.  The Consolidated Financial Statements, Notes to Consolidated Financial Statements and Management's Discussion and Analysis contained in that report should be read in connection with this Form 10-Q.

1.  BASIS OF PRESENTATION

The accompanying Consolidated Financial Statements are unaudited but in the opinion of management reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the Company's financial position and results of operations in accordance with accounting principles generally accepted in the United States applied on a consistent basis.  The accompanying consolidated balance sheet as of April 2, 2006 is derived from audited financial statements included in the Company's Annual Report on Form 10-K for the year then ended.



2.  RECENT ACCOUNTING PRONOUNCEMENTS

Effective April 3, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, *Share-Based Payment*("SFAS 123R").  SFAS 123R is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation, supercedes APB Opinion No.25, Accounting for Stock Issued to Employees, and amends FASB Statement No.95, Statement of Cash Flows. Generally, the approach in SFAS 123R is similar to the approach described in Statement 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company adopted this revised statement using the "modified prospective" recognition method, in which compensation cost is recognized beginning on the first day of the first day of the Company's fiscal year 2007 for all share-based payments granted after the effective date and for all awards granted to employees prior to April 3, 2006 that remain unvested on the effective date. Adoption of SFAS 123R does not have a material impact on the Company's financial statements and results of operations due to the Company's election in fiscal year 2003 to apply the expense recognition provisions of Statement 123 as well as due to the relatively small number of unvested options outstanding upon adoption.

On September 30, 2006, the Financial Accounting Standards Board (FASB) issued the new Statement of Financial Accounting Standards No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans ("SFAS 158").  This new standard amends FASB Statements No. 87, 88, 106, and 132(R), all of which provide accounting guidance for pensions and other postretirement benefits.  The objectives of this statement are for an employer to (a) recognize the overfunded or underfunded status of a single-employer defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in comprehensive income in the year in which the changes occur, and (b) measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions.  The effective dates of the two objectives are for fiscal years ending after December 15, 2006 and December 15, 2008, respectively.  Regarding the recognition requirement, the Company plans to adopt SFAS 158 as of its fiscal year ending April 1, 2007.  The estimated impact of this adoption is an approximate $6.0 million, net of tax, reduction in accumulated other comprehensive income and an approximate $8.6 million reduction in deferred pension assets.  Regarding the measurement date requirement, the Company currently uses a measurement date consistent with the requirements of this standard.



In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109" (FIN 48). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the impact of FIN 48 on its consolidated results of operations and financial condition.



3. REVENUES

The Company recognizes revenue, costs, and profit on construction contracts in accordance with Statement of Position No. 81-1 (SOP No. 81-1), "Accounting for Performance of Construction-Type and Certain Production-Type Contracts."  The Company enters into government cost-type contracts, time and materials contracts, and fixed price contracts.



The ship repair business consists of individual and short duration repair events, some of which are exercised by the Government under its various multi-ship, multi-option contracts.  Consequently, operating results for any period presented are not necessarily indicative of results that may be expected in any other period.



4. ENVIRONMENTAL AND OTHER RESERVES

As discussed in the Company's Form 10-K for the fiscal year ended April 2, 2006, the Company faces significant potential liabilities in connection with the alleged presence of hazardous waste materials at its Seattle shipyard and at two additional sites used by the Company for disposal of alleged hazardous waste.  Parties alleging damages from past exposure to toxic substances at Company facilities have also named the Company as a defendant in civil actions.

The Company continues to analyze environmental matters and associated liabilities for which it may be responsible.  No assurance can be given as to the existence or extent of any environmental liabilities until such analysis has been completed.  The eventual outcome of all environmental matters cannot be determined at this time; however, the analyses of the known matters have progressed sufficiently to warrant establishment of reserve provisions in the accompanying consolidated financial statements.

Harbor Island Site

In fiscal year 2001, the Company entered into a 30-year agreement with an insurance company that provides broad-based insurance coverage for the remediation of the Company's operable units at the Harbor Island Superfund Site ("Site").



The agreement provides coverage for the known liabilities in an amount not to exceed the policy limits.  As of October 1, 2006 these limits exceed the Company's current booked reserves of approximately $4.8 million.  Included in the reserves are sediment remediation costs for Harbor Island of $0.2 million that are expected to occur in the next 12 months.  These costs are reflected in the Company's balance sheet under current liabilities.  Likewise, the insurance receivable of $0.2 million relating to these reserves is reflected in the Company's balance sheet under current assets.



Additionally, in 2001 the Company entered into a 15-year agreement for coverage of any new environmental conditions discovered at the Seattle shipyard property that would require environmental remediation.



During the fourth quarter of fiscal year 2003, the Company and the EPA entered into a Consent Decree for the cleanup of the Shipyards Sediments Operable Unit (the "SSOU"), which was subsequently approved by the Department of Justice.



Remediation of the SSOU began in the second quarter of fiscal 2005.  The Company finished the pier demolition and required dredging in its entirety in fiscal year 2006.



Under the Federal Superfund law, potentially responsible parties may have liability for damages to natural resources in addition to liability for remediation.  During fiscal year 2003, the Company began discussions with the natural resource trustees ("Trustees") for the Site.  The Company anticipates that the Trustees will file a claim against the Company at some future date alleging damages to the natural resources at the Site caused by the release of hazardous substances.  The best estimate of the Company's natural resource damage liability is included in the environmental remediation reserve.  The payment of any eventual claim is covered by the aforementioned insurance policy, provided that aggregate policy limits have not been exceeded.



Other Environmental Sites

During the third quarter of fiscal year 2005, the Company, along with 55 other companies and organizations, was notified that it is a potentially responsible party ("PRP") at the BKK Landfill Facility in West Covina, California.  The site is the subject of an investigation and remedial order from the California Department of Toxic Substances Control.  It is alleged that the Company's San Pedro shipyard (closed in 1990) caused shipyard waste to be sent to the BKK Facility during the 1970s and 1980s.  The Company is investigating these allegations and is unable to estimate its exposure at this time.



During the second quarter of fiscal year 2005, the EPA notified the Company that it is a PRP at the Malone Service Company Superfund Site ("Malone") in Galveston County, Texas.  The EPA alleges that the Company's Galveston shipyard, which ceased operations in 1990, was the generator of waste materials that were delivered, through independent transport companies, to the Malone site.  The EPA has further indicated that the Company will, based on volumes of material at the site believed to have been generated by the Company, be eligible to participate in a "de minimus" settlement for small contributors.  The Company has included its best estimate of the settlement amount in its environmental reserve.



Asbestos-Related Claims

As reported in the Company's Form 10-K for its fiscal year 2006, the Company has been named as a defendant in civil actions by parties alleging damages from past exposure to toxic substances, generally asbestos, at closed former Company facilities.



The cases generally include as defendants, in addition to the Company, other ship builders and repairers, ship owners, asbestos manufacturers, distributors and installers, and equipment manufacturers and arise from injuries or illnesses allegedly caused by exposure to asbestos or other toxic substances.  The Company assesses claims as they are filed and as the cases develop, analyzing them in two different categories based on severity of illness.  Based on current fact patterns, certain diseases including mesothelioma, lung cancer and fully developed asbestosis are categorized by the Company as "malignant" claims.  All others of a less medically serious nature are categorized as "non-malignant".  The Company is currently defending approximately 22 "malignant" claims and approximately 549 "non-malignant" claims.  The Company and its insurers are vigorously defending these actions.



As of October 1, 2006 the Company has recorded a bodily injury liability reserve of $6.8 million and a bodily injury insurance receivable of $5.2 million.  This compares to a previously recorded bodily injury reserve and insurance receivable of $7.3 million and $5.5 million, respectively, at April 2, 2006.  These bodily injury liabilities and receivables are classified within the Company's Consolidated Balance Sheets as environmental and other reserves, and insurance receivables, respectively.



Other Reserves

During the first quarter of fiscal year 2004, the Company recorded a reserve of $2.5 million related to the unanticipated bankruptcy of one of its previous insurance carriers.  The reserve, which reflects the Company's best estimate of the known liabilities associated with unpaid workers compensation claims arising from the two-year coverage period commencing October 1, 1998, is subject to change as additional facts are uncovered.  These claims have reverted to the Company due to the liquidation of the insurance carrier.  Although the Company expects to recover at least a portion of these costs from the liquidation and other sources, the amount and the timing of any such recovery cannot be estimated currently and therefore no estimate of amounts recoverable is included in the current financial results.



Since establishing the reserve, the Company has paid approximately $0.7 million and $0.6 million in claims as of October 1, 2006 and April 2, 2006, respectively, which have been charged against the reserve.



5.  COMPREHENSIVE INCOME (LOSS)

The Company reported comprehensive gain of $0.3 million for the quarter ended October 1, 2006 which consisted of net income of $0.2 million and a net unrealized gain in available-for-sale securities of $0.1 million recorded in accumulated other comprehensive income.  For the six month period then ended, the Company reported comprehensive loss of $0.7 million, which consisted of net loss of $0.6 million and a net unrealized loss on available-for-sale securities of $0.1 million.

During the same period of fiscal year 2005, the Company reported comprehensive income of $4.4 million for the quarter ended October 2, 2005, which consisted of net income of $4.4 million and a decrease in net unrealized gains on available-for-sale marketable securities of $11,000.  For the six month period then ended, the Company reported comprehensive income of $7.0 million, which consisted of net income of $6.9 million and an increase in net unrealized gains on available-for-sale securities of $0.1 million.



6.  NET INCOME (LOSS) PER SHARE

The following table represents the calculation of net income (loss) per common equivalent share - diluted.







For the six month period ended October 1, 2006, the dilutive effect of stock options totaling 121,000 shares have been excluded from the calculation of weighted average common shares outstanding because their effect on net loss would be anti-dilutive.



7.  PENSIONS AND OTHER POSTRETIREMENT BENEFIT PLANS



Nonunion Pension Plan - The Company sponsors the Todd Shipyards Corporation Retirement System (the "Retirement System"), a non-contributory defined benefit plan under which all nonunion employees are covered.  The benefits are based on years of service and the employee's compensation before retirement.  The Company's funding policy is to fund such retirement costs as required to meet allowable deductibility limits under current Internal Revenue Service regulations.  The Retirement System plan assets consist principally of common stocks and Government and corporate obligations.



Under a provision of the Omnibus Budget Reform Act of 1990 ("OBRA '90") the Company will transfer approximately $1.2 million in excess pension assets from its Retirement System into a fund to pay fiscal year 2007 retiree medical benefit expenses.  OBRA '90 was modified by the Work Incentives Improvement Act of 1999 and subsequently updated April 10, 2004 by the Pension Funding Equity Act (HR-3108)







Post Retirement Group Health Insurance Program - The Company sponsors a defined benefit retirement health care plan that provides post retirement medical benefits to former full-time exempt employees, and their spouses, who meet specified criteria.  The Company terminated post retirement health benefits for any employees retiring subsequent to May 15, 1988.



The retirement health care plan contains cost-sharing features such as deductibles and coinsurance.  These benefits are funded monthly through the payment of group health insurance premiums.



Because such benefit obligations do not accrue to current employees of the Company, there is no current year service cost component of the accumulated post retirement health benefit obligation.









Union Pension Plans - Operating Shipyard - The Company participates in several multi-employer defined benefit and/or defined contribution pension plans, which provide benefits to the Company's collective bargaining employees.  The expense under these plans totaled $0.4 million and $1.1 million for the quarter and six months ended October 1, 2006, respectively.



During the same period of fiscal year 2006, the expense for these plans totaled $1.2 million and $2.5 million, respectively.



ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The Notes to Consolidated Financial Statements are an integral part of Management's Discussion and Analysis of Financial Condition and Results of Operations and should be read in conjunction herewith.



OVERVIEW

The Company derives a significant portion of its revenues from work performed under its contracts with the U.S. Navy ("Navy") and the U.S. Coast Guard ("Coast Guard").  Work under such contracts is scheduled by and at the convenience of the Navy and the Coast Guard. US Coast Guard work on the Polar Class Icebreakers as well as work on submarine contracts for Electric Boat ("EB") contributed significantly to the amount of work performed in the first half of fiscal year 2007.



Operating Results

All comparisons within the following discussion are to the corresponding period in the previous year, unless otherwise stated.

Revenue - The Company's second quarter revenue of $16.5 million reflects a decrease of $54.3 million (77%) from the same period last fiscal year.  The quarter to quarter decrease largely results from lower Navy work volumes.  The majority of the Company's Navy work volumes, as measured by direct labor hours, are associated with short-term (less than six months) vessel availabilities executed under multi-year option contracts.  In the second quarter of the prior year, revenues were favorably impacted by overhaul work on the aircraft carrier USS Stennis, Post Shakedown Availability work on the destroyer USS Momsen, and the planned maintenance availability (docking) of the U.S. Coast Guard Polar Sea icebreaker, all of which completed prior to the current fiscal year.  In contrast, the second quarter of the current year coincided with the beginning execution phase for overhaul work on the aircraft carrier USS Lincoln.



Revenues for the first six months of fiscal year 2007 of $36.6 million reflect a decrease of $101.0 million (73%) from the comparable period of fiscal year 2006.  The revenue decrease in the first six months of fiscal year 2007 is primarily attributable to the aforementioned year-on-year reduction in U.S. Navy and U.S. Coast Guard volumes.



The ship repair business consists of individual and short duration repair events, some of which are exercised by the Government under its various multi-ship, multi-option contracts.  Consequently, operating results for any period presented are not necessarily indicative of results that may be expected in any other period.



Cost of Revenue - Cost of revenue during the second quarter of fiscal year 2007 was $11.3 million, or 69% of revenue.  Cost of revenue during the second quarter of fiscal year 2006 was $53.3 million, or 75% of revenue.  The decrease in cost of revenue in the second quarter of fiscal year 2007 is primarily attributable to a decrease in Navy work volumes.  The decrease in the cost of revenue as a percentage of revenue when compared to the first quarter of fiscal year 2006 is primarily attributable to higher overhead reimbursement rates which affect cost-type revenues.



Cost of revenue during the first six months of fiscal year 2007 was $24.4 million, or 67% of revenue. During the comparable period in fiscal year 2006, cost of revenue was $103.1 million, or 75% of revenue. The decrease in cost of revenue is primarily driven by the aforementioned volume reductions versus the same period in the prior year,  The decrease of cost of revenue as a percentage of revenue in the first six months of fiscal 2007 versus the same period of fiscal 2006 is primarily attributable to higher overhead reimbursement rates which affect cost-type revenues.



Administrative and manufacturing overhead expense - Overhead costs for administrative and manufacturing activities were $5.3 million, or 32% of revenue, for the second quarter of fiscal year 2007.  During the same period of fiscal year 2006, administrative and manufacturing overhead costs were $11.2 million, or 16% of revenue. The $5.9 million decrease in administrative and manufacturing overhead is primarily attributable to volume decreases in the second quarter of fiscal 2007 versus the same period in the prior fiscal year.  The increase in administrative and manufacturing costs as a percentage of revenue is attributed to the fixed nature of many of these costs.



Administrative and manufacturing overhead costs for the first six months of fiscal year 2007 were $14.2 million, or 39% of revenue. During the same period of fiscal year 2006, administrative and manufacturing overhead costs were $24.9 million, or 18% or revenue. The $10.7 million decrease is the result of lower volumes during the first six months of fiscal 2007 versus the same period in the prior year. As discussed above for the quarter, the increase in administrative and manufacturing costs as a percentage of revenue is attributable to the fixed nature of many of these costs.



Investment & Other Income - Investment and other income was $0.3 million for the second quarter of fiscal year 2007. During the same period in fiscal year 2006, investment and other income was $0.4 million.  Investment and other income was $0.7 million during the first half of fiscal year 2007 and fiscal year 2006, respectively.



Income Taxes - The Company's effective income tax rate was 34% in the second quarters of both fiscal year 2007 and 2006.  In the second quarter of fiscal 2007, the Company recorded $0.1 million in federal income tax expense.  During the same period of fiscal 2006, the Company recorded $2.3 million in federal income tax expense.



The Company's effective income tax rate was 34% for the first half of both fiscal years 2007 and 2006.  The company recorded $0.3 million in federal tax benefit in the first half of fiscal year 2007.  During the same period of fiscal year 2006 the company recorded $3.6 million in expense

LIQUIDITY AND CAPITAL RESOURCES



The Company anticipates that its cash, cash equivalents and marketable securities position, anticipated fiscal year 2007 cash flow, access to credit facilities and if necessary capital markets, taken together, will provide sufficient liquidity to fund operations for fiscal year 2007.  Accordingly, shipyard capital expenditures are expected to be financed from working capital. Changes in the composition and/or timing of projected work could cause planned capital expenditures and repair and maintenance expenditures to change.



Working Capital

Working capital at October 1, 2006 was $27.2 million, a decrease of $23.0 million or 46% from the working capital reported at the end of fiscal year 2006.  This decrease is primarily attributable to the funding of an extraordinary cash dividend of $4.00 per share which totaled approximately $22.1 million (discussed below).  A reduction in cash of $3.5 million, a decrease in securities available-for-sale of $24.7 million and a reduction in accounts receivable of $3.7 million were offset by decreases in accounts payable and other accruals of $7.5 million.



Capital Expenditures

Capital expenditures of $0.8 million for the second quarter of fiscal year 2007 and $1.9 million for the first half of fiscal year 2007 were attributable to planned improvements to the Seattle shipyard facility and investments in equipment.



Credit Facility

Shortly after the end of fiscal year 2006, the Company re-negotiated certain terms of its $10.0 million revolving credit facility.  The credit facility, which is renewable on a bi-annual basis, provides the Company with greater flexibility in funding its operational cash flow needs.  Borrowings on the line of credit have an interest rate, at management's discretion, of either the prime rate or LIBOR rate plus 1.5%.  Furthermore, the Company has certain financial debt covenants that it must meet in order to maintain this line of credit.  Todd is in compliance with all debt covenants and had no outstanding borrowings as of October 1, 2006 and April 2, 2006, respectively.

Dividends

At a special meeting of the Company's shareholders held on May 23, 2006, shareholders approved proposed amendments to the Company's incentive stock compensation plans.  On March 24, 2006, the Board of Directors approved the payment of an extraordinary cash dividend of $4.00 per share, or an aggregate of approximately $22.1 million.   Payment of the dividend was subject to shareholder approval of an amendment to the Company's incentive stock compensation plans that would allow adjustments to equity compensation awards to offset the impact of extraordinary transactions, including non-recurring cash dividends or distributions.  Shareholders of record as of June 5, 2006 were entitled to receive the extraordinary dividend which was paid on June 20, 2006.  The amendments approved by the Company's shareholders and the adjustments approved by Todd's Board of Directors



In addition to the extraordinary dividend of $4.00 per share mentioned above, the Board of Directors increased the quarterly dividend, payable June 23, 2006, from $.10 to $.15 per share.  In fiscal years 2006 and 2005, the Company paid quarterly dividends of $.10 per share.



On June 23, 2006, the Company paid a dividend of fifteen cents ($0.15) per share to all shareholders of record as of June 8, 2006.  On September 26, 2006, the Company paid a dividend of fifteen cents ($0.15) per share to all shareholders of record as of September 8, 2006.  In each case the amount of the dividend paid was $0.8 million.



Also, on September 15, 2006, the Company declared a dividend of fifteen cents ($0.15) per share to be paid on December 22, 2006 to all shareholders of record as of December 6, 2006.  The estimated amount of this dividend is $0.8 million.





ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES

As reflected in the balance sheet and discussed in Note 4 to the financial statements, the Company has provided total aggregate reserves of $12.6 million at October 1, 2006 for its contingent environmental and bodily injury liabilities.  As of April 2, 2006, the Company had recorded aggregate reserves of $14.2 million.  The $1.6 million decrease in aggregate reserves during the first six months of fiscal 2007 is comprised of a $1.0 million reduction in Harbor Island Superfund Site reserves due to recent remediation activities and a $0.6 million reduction in bodily injury liabilities due to claims activity during this period.  Due to the complexities and extensive history of the Company's environmental and bodily injury matters, the amounts and timing of future expenditures are uncertain.  As a result, there can be no assurance that the ultimate resolution of these environmental and bodily injury matters will not have a material adverse effect on the Company's financial position, cash flows or results of operations.



The Company has various insurance policies and agreements that provide coverage on the costs to remediate environmental sites and for the defense and settlement of bodily injury cases.  These policies and agreements are primarily with two insurance companies.  Based upon the current credit ratings of both of these companies, the Company anticipates that both parties will be able to perform under the terms of their respective policy or agreement.



As of October 1, 2006, the Company has recorded aggregate assets of $10.0 million related to its reserves for environmental and bodily injury liabilities.  As of April 2, 2006, the Company had recorded aggregate assets of $11.4 million.  The $1.4 million decrease in these assets is a result of receipts for the Harbor Island remediation currently in progress of $1.1 million and a decrease in recoveries related to bodily injuries of $0.3 million.  These assets reflect receivables under contractual arrangements with the insurance companies to share costs for certain environmental and other matters, as well as amounts deposited to securitize certain remediation activities.  Amounts recoverable from insurance companies are recorded within the Company's Consolidated Balance Sheets as insurance receivables and, in the case of reimbursements currently due, as a current asset.  Amounts held in security deposits are recorded within the Company's Consolidated Balance Sheets as restricted cash.



BACKLOG

At October 1, 2006 the Company's firm shipyard backlog consisted of approximately $59 million of repair and overhaul work.  The Company's backlog at April 2, 2006 was approximately $72 million.  The decrease in the backlog work at the end of the first half of fiscal year 2007 is primarily due to the completion of work on several US Coast Guard and Navy vessels and a reduction in the scope of work scheduled for the USS Lincoln.

LABOR RELATIONS

The Company operates under a collective bargaining agreement with the Puget Sound Metal Trades Council (the bargaining umbrella for all unions at Todd Pacific Shipyards) which was ratified by the rank and file in November 2005.  The three-year agreement, which was retroactive to August 1, 2005, will expire on July 31, 2008.  The agreement provides for increases in the wages and fringe benefits of approximately 4.3% per year.



ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.  The Securities and Exchange Commission defines the term "disclosure controls and procedures" to mean a company's controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.  Our chief executive officer and our chief financial officer have concluded, based on the evaluation of the effectiveness of our disclosure controls and procedures by our management, with the participation of our chief executive officer and our chief financial officer, as of the end of the period covered by this report, that our disclosure controls and procedures were effective for this purpose.



(b) Changes in Internal Controls Over Financial Reporting. There have been no changes in our internal controls over financial reporting during the three months ended October 1, 2006 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



PART II.  OTHER INFORMATION

ITEM 5.  OTHER INFORMATION

Pursuant to the requirements of paragraph 12(a) of Section 303A of the New York Stock Exchange ("NYSE") Listed Company Manual, the Company submitted CEO Compliance Certifications to the NYSE in both 2006 and 2005.  Further, the Company filed certifications of its CEO and its CFO with the Securities and Exchange Commission pursuant to, and in the form required by, Rule 13a-14(d) under the Securities Exchange Act of 1934 as exhibits to its most recently filed Form 10-K.



ITEM 6.  EXHIBITS

(a)  Exhibits

|No. 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14a (filed herewith)                                                                                                                                           
|-------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                                                                              
|No. 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14a (filed herewith)                                                                                                                                           
|         |                                                                                                                                                                                                                              
|No. 32.1 | Certification of Chief Executive Officer pursuant to Rule 14(b) and section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code. (furnished herewith)*
|         |                                                                                                                                                                                                                              
|No. 32.2 | Certification of Chief Financial Officer pursuant to Rule 14(b) and section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code. (furnished herewith)*
|         |                                                                                                                                                                                                                              
|No. 99.1 | Press Release dated November 9, 2006 announcing financial for the Company's quarterly period ended October 1, 2006 (furnished herewith)*                                                                                     



*Notwithstanding any incorporation of this Quarterly Report on Form 10-Q in any other filing by the Registrant, Exhibits furnished herewith and designated with an asterisk (*) shall not be deemed incorporated by reference to any other filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 unless specifically otherwise set forth therein.



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TODD SHIPYARDS CORPORATION

Registrant









/s/Berger A. Dodge
Berger A. Dodge
Chief Financial Officer and Treasurer
November 9, 2006